Publication 525 - Introductory Material

Future Developments

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What's New

Health flexible spending arrangements (health FSAs) under cafeteria plans. For plan year 2014, health FSAs are subject to a $2,500 limit on salary reduction contributions.

Qualified Medicaid waiver payments. Certain payments you receive for providing care for an eligible individual in your home under a state's Medicaid waiver program, are not included in your income. These payments may be excluded from your income whether or not you are related to the eligible individual receiving care.

Virtual Currency. For federal tax purposes, virtual currency is treated as property. Bitcoin is an example of virtual currency. Transactions using virtual currency (such as Bitcoin) must be reported in U.S. dollars.The fair market value of virtual currency (such as Bitcoin) paid as wages is subject to federal income tax withholding, FICA tax, FUTA tax and must be reported on Form W-2. Notice 2014-21, 2014-16 I.R.B. 938 describes how virtual currency is treated for federal tax purposes and is available at–16_IRB/ar12.html.


Itemized deduction for medical expenses. For 2014, an itemized deduction is generally allowed for uncompensated medical expenses that exceed 10% of adjusted gross income (AGI). If an individual or an individual’s spouse was born before January 2, 1950, the deduction is allowed for expenses that exceed 7.5% of AGI.

Additional Medicare Tax. In addition to the 1.45% Medicare tax, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

  • $125,000 if married filing separately,

  • $250,000 if married filing jointly, or

  • $200,000 if single, head of household, or qualifying widow(er).

For more information, see Form 8959 and its instructions.

Net Investment Income Tax (NIIT). The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the threshold amounts. Individuals will owe the tax if they have net investment income and also have modified adjusted gross income over the following thresholds for their filing status: Married filing jointly, $250,000; Married filing separately, $125,000; Single, $200,000; Head of household (with qualifying person), $200,000; Qualifying widow(er) with dependent child, $250,000. For more information, see Form 8960 and its instructions.

Terrorist attacks. You can exclude from income certain disaster assistance, disability, and death payments received as a result of a terrorist or military action. For more information, see Sickness and Injury Benefits, later, and Publication 3920, Tax Relief for Victims of Terrorist Attacks.

Gulf oil spill. You are required to include in your gross income payments you received for lost wages, lost business income, or lost profits. See Gulf oil spill under Other Income, later.

Qualified settlement income. . If you are a qualified taxpayer, you can contribute all or part of your qualified settlement income, up to $100,000, to an eligible retirement plan, including an IRA. Contributions to eligible retirement plans, other than a Roth IRA or a designated Roth contribution, reduce the qualified settlement income that you must include in income. See Exxon Valdez settlement income under Other Income, later.

Foreign income. If you are a U.S. citizen or resident alien, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or Form 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties). If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Disaster mitigation payments. . You can exclude from income grants you use to mitigate (reduce the severity of) potential damage from future natural disasters that are paid to you through state and local governments. For more information, see Disaster mitigation payments under Welfare and Other Public Assistance Benefits, later.

Qualified joint venture. A qualified joint venture conducted by you and your spouse may not be treated as a partnership if you file a joint return for the tax year. See Partnership Income under Business and Investment Income, later.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that otherwise would be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.


You can receive income in the form of money, property, or services. This publication discusses many kinds of income and explains whether they are taxable or nontaxable. It includes discussions on employee wages and fringe benefits, and income from bartering, partnerships, S corporations, and royalties. It also includes information on disability pensions, life insurance proceeds, and welfare and other public assistance benefits. Check the index for the location of a specific subject.

In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax. Income that is nontaxable may have to be shown on your tax return but is not taxable.

Constructively received income.   You are generally taxed on income that is available to you, regardless of whether it is actually in your possession.

   A valid check that you received or that was made available to you before the end of the tax year is considered income constructively received in that year, even if you do not cash the check or deposit it to your account until the next year. For example, if the postal service tries to deliver a check to you on the last day of the tax year but you are not at home to receive it, you must include the amount in your income for that tax year. If the check was mailed so that it could not possibly reach you until after the end of the tax year, and you otherwise could not get the funds before the end of the year, you include the amount in your income for the next tax year.

Assignment of income.   Income received by an agent for you is income you constructively received in the year the agent received it. If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it.


You and your employer agree that part of your salary is to be paid directly to one of your creditors. You must include that amount in your income when your creditor receives it.

Prepaid income.   In most cases, prepaid income, such as compensation for future services, is included in your income in the year you receive it. However, if you use an accrual method of accounting, you can defer prepaid income you receive for services to be performed before the end of the next tax year. In this case, you include the payment in your income as you earn it by performing the services.

Comments and suggestions.    We welcome your comments about this publication and your suggestions for future editions.

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Ordering forms and publications.    Visit to download forms and publications. Otherwise, you can go to to order forms or call 1-800-829-3676 to order current and prior-year forms and instructions. Your order should arrive within 10 business days.

Tax questions.    If you have a tax question, check the information available on or call 1-800-829-1040. We cannot answer tax questions sent to the above address.

Useful Items - You may want to see:


  • 334 Tax Guide for Small Business

  • 523 Selling Your Home

  • 527 Residential Rental Property

  • 541 Partnerships

  • 544 Sales and Other Dispositions of Assets

  • 550 Investment Income and Expenses

  • 559 Survivors, Executors, and Administrators

  • 575 Pension and Annuity Income

  • 915 Social Security and Equivalent Railroad Retirement Benefits

  • 970 Tax Benefits for Education

  • 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments

Form (and Instructions)

  • 1040 U.S. Individual Income Tax Return

  • 1040A U.S. Individual Income Tax Return

  • 1040EZ Income Tax Return for Single and Joint Filers With No Dependents

  • 1040NR U.S. Nonresident Alien Income Tax Return

  • 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  • W-2 Wage and Tax Statement

See How To Get Tax Help , near the end of this publication, for information about getting these publications.

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